POSSIBLE EFFECTS IN THE US
OF THE MESS WE CREATED IN UKRAINE
PART 1
Economist John Williams says if Russia sells its U.S. dollar
holdings, it could trigger hyperinflation. Could it collapse the
financial system? Williams contends, “Yes, it certainly has a potential
to do that. Looking
outside the United States, there is something over $16 trillion in cash, or
near cash. That’s about the same size as our GDP. . . Nobody has
wanted to hold the dollar for some time. The dollar, fundamentally, is
weak. It couldn’t be weaker. All the major factors are against
it. It’s just a matter of what would
trigger the massive selling. Nobody wants to hold it. The Russians
start selling, and you have China indicating a general alliance here in terms
of what’s transpiring. If the rest of the world believes this is what’s
going to happen, people who have been wanting to get out of the dollar for some
time very easily could front-run the Russians. The scare is on.
People will try to get out of it as rapidly as they can.
What
would happen if there was massive dollar dumping globally? Williams says,
“It would be disastrous for our markets.
All those excess dollars coming in, with bonds being sold, interest rates would
spike. The stock market would sell off and we’d see
inflation. To prevent that and try and keep things stable, the Fed would
tend to buy up those Treasuries. It would intervene wherever it could to
stabilize the circumstance. It’s going to be very difficult, and it’s
going to be very inflationary. Williams goes on to say, “You have to keep in mind, back in 2008, we had one of the
greatest financial crises the United States had ever faced. The system
was on the brink of collapse at that point in time. What the Fed and the
federal government did was spend every penny they could, anything they could
create or anything they could guarantee. They did everything they could
possibly do to keep the system from crashing. They guaranteed all bank
accounts. So, they saved the system, but now what they did has not borne
fruit. We have not seen an economic recovery. We have not seen a
return of health to the banking system. So, the system is very
vulnerable; and if the Russians carry through with their threat, you have,
indeed, the risk of it collapsing the system.”
Is this the end of the world as we know it in the U.S.? Williams
says, “It does have the effect of creating a hyperinflation, which I think it
would. It’s the type of circumstance that
will not allow life to continue as we know it because the U.S. is not able to
handle hyperinflation. We’re not structured for it.
Zimbabwe had one of the worst hyperinflations that anyone has ever seen.
They were still able to function for a while because they get paid in a rapidly
depreciating currency. It was so rapid it became like toilet paper
overnight, but they would go to a black market and exchange it for
dollars. We (the U.S.) don’t have a black
market to escape from our dollars. Gold is probably the closest thing to
that. Gold will tend to rally here as the dollar sells off, baring very
heavy intervention by the central banks which you may see. The
fundamentals will eventually dominate, and you will see a very weak dollar and
very strong gold coming out of this.”
Don’t look for the U.S. dollar as the safe haven because Williams says,
“Historically the dollar has been the safe haven in a political or financial
crisis, but that hasn’t been the case for four or five years now.
Instead, what you have seen is a flight to other traditional safe havens such
as gold and the Swiss Franc. The dollar has
lost its magic. Nobody wants to hold it. So, if the Russians follow
through and convince the rest of the world that they are going to do it and it
looks like China may join them, a lot of countries will want to dump dollars
and get out ahead of the crowd.”
On the overall economy, Williams says, “It is rolling over, and the
numbers are starting to show we are starting into a new recession. You
should have an actual quarterly contraction in the first quarter GDP. One
of the best indicators of that are retail sales, and they gave a clear
recession signal in January. That’s the strongest recession signal since
September of 2007, which is three months before the ‘Great Recession’ took
place, and I’ll contend it never ended.”
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